Water resources institutions and Technical efficiency by smallholder farmers: A case study from Cuatro Lagunas, Peru Denise Cavero Documento de Trabajo N° 116 Programa Dinámicas Territoriales Rurales Rimisp – Centro Latinoamericano para el Desarrollo Rural P á g i n a | 2 Este documento es el resultado del Programa Dinámicas Territoriales Rurales, que Rimisp lleva a cabo en varios países de América Latina en colaboración con numerosos socios. El pro- grama cuenta con el auspicio del Centro Inter- nacional de Investigaciones para el Desarrollo (IDRC, Canadá). Se autoriza la reproducción parcial o total y la difusión del documento sin fines de lucro y sujeta a que se cite la fuente. This document is the result of the Rural Terri- torial Dynamics Program, implemented by Rimisp in several Latin American countries in collaboration with numerous partners. The program has been supported by the Internation- al Development Research Center (IDRC, Cana- da). We authorize the non-for-profit partial or full reproduction and dissemination of this document, subject to the source being properly acknowledged. Cita / Citation: Cavero, D. 2012. “Water resources institutions and technical efficiency by smallholder farmers: A case study from Cuatro Lagunas, Peru”. Docu- mento de Trabajo N° 116. Programa Dinámicas Territoriales Rurales. Rimisp, Santiago, Chile. The autor is MSc (c) in International Develop- ment Studies at Wageningen University, The Netherlands. The author is thankful to GRADE for the provi- sion of the DTR survey data, CBC for the institu- tional support during her fieldwork in Cuatro Lagunas and RIMISP for the funding. © Rimisp-Centro Latinoamericano para el Desa- rrollo Rural Programa Dinámicas Territoriales Rurales Casilla 228-22 Santiago, Chile Tel +(56-2) 236 45 57 [email protected] www.rimisp.org/dtr Cavero, D. Programa Dinámicas Territoriales Rurales Índice Summary .............................................................................................................. 2 1.- Introduction ..................................................................................................... 3 2.- Conceptual framework and literature review ......................................................... 7 2.1. Natural capital and property rights ................................................................. 7 2.2. Surface water resources ................................................................................ 8 2.2. Irrigation institutions .................................................................................... 9 2.4 Water rights acquisition................................................................................ 11 3.- The area of study ............................................................................................ 13 3.1 Location .................................................................................................... 13 3.2 Water resources in the territory .................................................................... 14 3.3 Economic activities ...................................................................................... 18 4.- Irrigation Institutions in Cuatro Lagunas ............................................................ 21 4.1 The Peruvian State legal framework on water resources use ............................. 21 4.2 The Customary law governing water resources allocation ................................. 26 4.3 A dual framework on water resources allocation .............................................. 27 5.- Econometric estimation and data specification .................................................... 33 5.1 Econometric model ...................................................................................... 33 5.2. The sample ................................................................................................ 36 5.3 Empirical results .......................................................................................... 39 5.4. Irrigation institutions and technical efficiency ................................................. 42 6.- Conclusions .................................................................................................... 47 Bibliografía .......................................................................................................... 50 APPENDIX: Map of Cuatro Lagunas ........................................................................ 54 P á g i n a | 2 Summary Cuatro Lagunas, located in the Peruvian rural highlands, is a rural territory with strong cultural and social identity where economic and institutional factors in- teract over the natural resources allocation. This traditional poor area, tradi- tionally governed by communal institutions, has shown a dynamic pattern of economic growth during the last fifteen years. However, the economic growth has come together with more intensive use and contested situations over the natural resources in the territory. In this scenario, the purpose of this research is to assess the interaction between the institutions governing natural re- sources use and the economic performance by smallholder farmers. In particu- lar, the study aim is to analyze how the increasing demand for water resources in the territory has led to changes in its institutional structure that ultimately affect agricultural productivity by farmers. This study presents evidence that Cuatro lagunas is changing its institutional framework and giving room to more autonomous institutions and more pres- ence of the State law allocating water resources. In Cuatro Lagunas this study finds the coexistence of different institutional regimes governing water alloca- tion. There are institutions allocating resource under the national legal frame- work and under the customary law. Furthermore, under the customary law there are independent and centralized regimes. The economic dynamism in this territory is giving more presence to independent regimes and more pres- ence of institutions governed by the Water Resources law. In contexts of in- creased water demand and contested situations over common pool water re- sources the water rights by the State are considered more secure title to as- sure mutual acknowledgement between communities that share the resources. Finally, the empirical analysis shows the significant association between higher levels of technical efficiency and the participation in more independent institu- tional regimes allocating water resources. Cavero, D. Programa Dinámicas Territoriales Rurales P á g i n a | 3 1.- Introduction The relevant literature about rural poverty has documented the existence of institutional failures that prevent access to markets (Trivelli et al. 2009, Escob- al et al. 1998) and affect economic efficiency and profitability by smallholder farmers (Escobal, 2006). In this vein, the role of institutions on natural re- sources allocation is especially crucial, considering that rural households‟ de- pendence on those resources is high. Natural capital plays a key role for the profitability of economic activities by determining investment decisions and productivity outcomes (Carney 1998, Lee and Neves 2010). The institutional scenario to access natural resources affects efficiency on allo- cation and ultimately farmers´ productivity and returns. In this vein, the pres- ence of high transaction costs may discourage poorer farmers from using irri- gation and may affect the efficiency on allocation (Zegarra 2002a, Zegarra 2004). Furthermore, the lack of market mechanisms1 and the complexity of institutions governing water allocation have been documented by the literature as institutional barriers affecting access to irrigation. Among the most relevant institutional barriers, the existence of legal dualities, are relevant factors driv- ing water resources conflicts by users and affecting natural resources allocation (Trawick 2003, Bruns and Meinzen-Dick, 2000). The literature on irrigation institutions in the Andean countries, has docu- mented several of these conflicts and complexities on water resources use by Andean and indigenous communities (Boelens and Hoogendam 2002, Boelens, 2009, Sosa 2008, Verzijl 2005). This is especially the case when there are dif- ficulties to implement a national legal system over cultural and geographical diverse territories. The Andean countries involve a cultural diversity that im- poses a singular complexity for the institutions governing collective use of wa- ter resources (Boelens 2009). The topic of Peruvian highlands‟ irrigation is an interesting field of research. In Peru, the highlands‟ agricultural fields were traditionally rainfed but now are increasing the use of surface water to complement rainfall availability through- out the year. There are studies that documented the positive impacts of irriga- tion on agricultural performance by Peruvian farmers (Datar and Del Carpio 2009, Baca 1998). Irrigation availability in the highlands provides more agri- cultural production and more opportunities to access markets (Baca 1998). However, the role of irrigation institutions in farmers‟ productivity has not been studied with great detail yet. In the Peruvian highlands water markets are non- 1 Zegarra (2002b) documented the importance of market mechanisms to achieve efficient allocation of water resources. Cavero, D. Programa Dinámicas Territoriales Rurales P á g i n a | 4 existent and resources are allocated by several types of institutional regimes generating a complex scenario for the allocation of the resource (Trawick